Overcoming Barriers to Digital Transformation

By Paul Miller

Category:
ARC Report Abstract

Overview

In recent years, much of the content at ARC Advisory Group’s annual Industry Forum in Orlando, Florida has revolved around IT/OT convergence and the digital transformation of industry, infrastructure, and cities. This year, the Forum is addressing the barriers to digital transformation.

As we’ve learned, digital transformation can be a challenging, if necessary, journey.  At each year’s Forum, we learn more about how pioneering companies are overcoming these challenges and the associated operational and business benefits.  barriers to digital transformation flforum1.JPGThis year, one of the key Forum takeaways was that culture, rather than technology, is often one of the major barriers to digital transformation. Other discussion threads centered around cybersecurity and data ownership.

The Forum general session featured keynotes by executives from two leading global manufacturers: Nihar Satapathy from thyssenkrupp and Larry Megan from Praxair Digital.  Mr. Satapathy and Mr. Megan shared some of their digital transformation-related success stories to date and key lessons learned.  This ARC Insight will attempt to summarize the key takeaways from these and other keynotes and provide a brief overview of the Forum as a whole.

For those of you who could not attend the 23rd annual ARC Industry Forum this week at the Renaissance Orlando at SeaWorld  in Florida, videos of most sessions will soon be available on ARC’s YouTube Channel.  We’ve already uploaded hundreds of videos from previous ARC Industry Forums.  Check back at www.arcweb.com for news of this year’s videos.

More than 950 Attendees, 300 Companies, and 200 Speakers

barriers to digital transformation flforum2.JPGOnce again, this year’s Forum set record attendance with more than 950 participants from 20 countries representing more than 300 companies.  A record number of corporate sponsors also helped make this annual event possible.  Many industry association and media sponsors also participated.  This year’s Forum featured nine topical programs hosted in six tracks for a total of 55 different sessions and workshops.  More than 200 distinguished presenters and panel participants shared their insights, experiences, and concerns.

A low-key Super Bowl reception on Sunday evening served as the unofficial kickoff for the event.  On Monday, we had a full day of cybersecurity, smart city, and APM workshops; plus a meeting of the end user-driven Digital Transformation Council and a full slate of press announcements.  Three more days of sessions, workshops, panel discussions, meetings, and receptions followed.  These included a meeting of the Open Process Automation Forum (OPAF) and a relaxing reception at the nearby SeaWorld Key West and Antarctica Empire of the Penguins areas sponsored by Microsoft. 

Disrupting the Commoditization of Manufacturing

The keynote presentations during Monday morning’s general session kicked off the formal Forum program.

Nihar Satapathy, Sr. Vice President of Strategy Markets & Development at thyssenkrupp North America gave a compelling presentation entitled, “Journey Through Manufacturing 4.0: Disrupting the Commoditization of Manufacturing.” A diversified, approximately $10.5 billion industrial group, thyssenkrupp has more than 40 manufacturing-centered businesses and 24,000 employees.  

Innovation Is at the Center of thyssenkrupp’s Digital Transformation flforum3.JPGAs the title of his presentation suggests, Mr. Satapathy believes that well-established companies such as thyssenkrupp need to transform digitally to avoid the risk of becoming commoditized.  “For us, innovation is at the center of our digital transformation.  We like to engineer the solutions of tomorrow with our customers.  But how does a 200 year old company do this?”

New technology trends and business models are impacting the company’s place in the value chain, threatening commoditization. To compete in this environment, thyssenkrupp developed the ability to apply a broad range of digital tools to increase customer value add.

Mr. Satapathy gave use cases in three different areas of the company’s business: elevators, automotive, and home stair lifts.  Each demonstrates innovative ways for the company to differentiate its offerings.

Predictive Maintenance for Elevators

MAX, thyssenkrupp’s predictive maintenance solution for its elevators, leverages remote IoT-connected sensors, analytics, and the company’s core competencies in this area.  According to Mr. Satapathy, the solution turns every elevator into a communication device and uses the data collected to track and improve reliability.  “The biggest risk to manufacturers is that they are used to selling widgets,” he said.  “Ultimately, the traditional line between products and service will blur.”

Digital Twin for Automotive Manufacturing

The company’s digital twin solution for automotive manufacturing mimics what’s happening on assembly lines in near real time to improve performance and speed any needed changes to those lines. Mr. Satapathy showed a video that demonstrated how fast the digital twins can react on a robotic assembly line.  In this and other applications, data gives thyssenkrupp the capability to control its value stream.

Digitalized Solution for Custom-Built Stair Lifts

Stair lifts are designed to enable stair-challenged individuals to navigate through their homes more freely.  The traditional sales/design/manufacture/install process for stair lifts involves having a company salesperson first visit the home to discuss options and take measurements.  Then, sometime later, the salesperson would come back with a CAD drawing to review with the homeowner.  Once approved, the design went to factory and – with any luck – the chairlift would be ready to install in the home within several months.  Clearly, this was not ideal for customers, particularly those anxious to improve their mobility.

After justifying the business value for this technology investment, thyssenkrupp collaborated with Microsoft to develop an innovative digital solution called HoloLinc.  The thyssenkrupp salesperson uses Microsoft’s HoloLens VR headset to digitally scan and measure the space.  The data is then sent to Microsoft’s Azure cloud platform and used to configure a suitable stairlift design.  The customer can then view the proposed design in 3D and the salesperson can customize, generate a price quote on the spot, and – if accepted – send the order to manufacturing in just hours, rather than days or weeks.

The company can now manufacture and install a custom-designed stair lift in weeks, rather than months.  According to Mr. Satapathy, this new customer-centric digital solution has helped thyssenkrupp double its stairlift business.

Lessons Learned at thyssenkrupp

Mr. Satapathy concluded his keynote by summarizing the lessons learned:

  • Digitalization is inevitable – embrace it, the sooner the better
  • Technologies are available – find relevant business cases to create customer value
  • Partnerships – leverage relationships and be open for new ways of engagement
  • Stay the course – it will be worth it, it will be game changing!
  • It’s a journey – prepare for the long haul with time, effort, and resources

Building Digital DNA at Scale

Larry Megan, Director at Praxair Digital, began his keynote, “Building
DigitalDNA@Scale,” by pointing out that it can be hard to sort out the hype from the reality.  “You hear about the promise; but we all have technology and organizational debt.”  Digital transformation means different things to different companies and different functions.  Mr. Megan stressed that “It’s important to know your target.  Don’t get hung up on the definitions, just what you need to accomplish.”

He recommended developing a digital strategy based on:

  • Never starting with technology
  • Feeling your customers’ experience (internal and external)
  • Building a foundational platform to support scaling, and
  • Emphasizing products over projects (should be both sustainable and improvable over time)

He also stressed the importance of knowing your path to value.  In Praxair’s case, this included real-time visibility, granularity, reduced friction, and ecosystem connectivity.  “It’s not about being more digital, but about changing how work gets done,” he said.

Digital Strategy for Praxair Industrial Gas Business

Praxair has a variety of businesses with diverse business and digital strategies.  The slide below summarizes its business strategies and associated digital strategies for its onsite industrial gas supply business that serves steel mills and other process plants.  Some examples then follow.

Predictive Reliability for Large Compressors

The company developed a digital predictive reliability strategy for its many large compressors.  Starting with a global foundation of a historian and CMMS, the company is installing new sensors to get the needed data to the limited number of experts available to support the company’s many facilities.  “We’re trying to do more with data at the edge,” Mr. Megan explained.

Praxair aims to implement a platform strategy for what he referred to as “collaborative analysis.”  This would utilize edge analytics and involve close cooperation between the operator and equipment OEM in an open and collaborative environment, thus avoiding the “black box” syndrome.  Mr. Megan suggested that this would be a move toward reliability as a service.

Energy Efficiency

Praxair worked with the US Department of Energy to improve energy efficiency by using infrared sensors to measure heat losses around the perimeters of its large furnaces.  Using its historian as a global foundation, the company’s digital strategy for energy efficiency will focus on developing low-cost sensors/controls and utilizing open platforms.

Lowered Fixed Costs

According to Mr. Megan, the company plans to lower its fixed costs through a global foundation of remote connectivity to support a remote operations center and by using augmented reality to help bring expertise back to the field.    

Culture Eats Strategy

Mr. Megan stressed the importance of addressing the cultural as well as strategic aspects of digital transformation.  “If you don’t build a culture that’s open to digital transformation, you won’t succeed.”  To help encourage buy in, the company held an “I need an app” contest for employees.  The company selected ten apps for funding from the hundreds of suggestions submitted.

To help develop the digital culture needed for effective digital transformation, he advised Forum participants to invest in initiatives that change the company, establish leadership to identify and drive digital opportunities, and communicate success stories to energize the organization.

Planning for Digital Transformation

In his general session presentation, Mike Guilfoyle, Research Director at ARC Advisory Group, provided some perspectives on planning for digital transformation based on ARC’s research, consulting, and collaboration activities in this area.  Not surprisingly, many of these thoughts resonated with those provided by the previous keynotes.

Mike made it a point to emphasize that “You can’t do anything digital without cybersecurity.”  He also called attention to the many Forum workshops, sessions, and panel discussions that relate to cybersecurity, digital transformation, and digital The Digital Transformation Imperative to get over barriers to digital transformation flforum4.JPGtechnologies (IoT, machine learning, virtual and augmented reality, digital twins, etc.) and encouraged end users to participate in future Digital Transformation Council meetings.

The Imperative

As Mike explained, “Whether it’s disruptive technology, ongoing market innovation, multi-billion-dollar governmental pushes, or some combination of all three; all industries and populations are feeling pressure to transform.”  This makes it clear that every industrial- and infrastructure-related organization and municipality needs to understand how to embrace and execute digital transformation.

The Scalability Challenge

What makes careful planning so critical is that organizations expect to reap massive, game-changing benefits from digital transformation. Yet, as Mike explained, many continue to be confounded when it comes to ROI and scale.  He referred to statistics that indicate that more than 80 percent of industrial companies are now undertaking digital transformation initiatives, but less than 11 percent are seeing sustainable success.  “Many industrial users suffer from ‘pilot paralysis.’  Others are unable to scale up to maximize the benefits,” he explained.  “I don’t need machine learning to know that something is wrong with this picture.”

Common Barriers to Digital Transformation

Mike explained that common missteps include:  numerous possibilities without direction, pursuit of technology, and managing cultural impediments.  All are related. 

Digital transformation offers a plethora of possibilities, but much less direction.  This leads to the pursuit of technology for technology’s sake.  And, of course, as he emphasized, “The cultural barriers, the elephant in the room, underpin all others.  No one wants to take on the cultural barriers to change,” he said.

Possibilities without Direction

“Digital transformation presents many possibilities, which can be both challenges and opportunities.  Some are understood but still difficult.  Many simply can’t be foreseen, yet the organization must be prepared to deal with them.  When examining all these possibilities, it becomes exceedingly difficult to answer the simple questions, what needs to be done, why, and when?”

Pursuit of Technology 

“Without a good compass to provide direction, many companies gravitate toward viewing digital transformation as a pursuit of technology. That’s a pretty natural progression. However, it just adds to the problem. Given all the technologies and marketing behind them, it’s very difficult to understand differences in solutions so that vendors can be compared in a meaningful way,” Mike explained.

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Keywords: ARC Industry Forum, Digital Transformation, Barriers to Digital Transformation, Cybersecurity, Culture, ARC Advisory Group.

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